1 / 43

November 2012

November 2012. Economic Outlook. Supavud Saicheua Emerging Asia Economist Phatra Securities. 2013 risks remain on downside. GDP growth for major countries. Source: BoAML. Recent data in US and China raise hope for improving economic situation US: improving housing sector, employment

bevis
Download Presentation

November 2012

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. November 2012 Economic Outlook Supavud Saicheua Emerging Asia Economist Phatra Securities

  2. 2013 risks remain on downside GDP growth for major countries Source: BoAML • Recent data in US and China raise hope for improving economic situation • US: improving housing sector, employment • China: pick up signs of IP, retail sale, exports • Global growth has slowed and risks remain on the downside. • Europe is in a prolonged recession • US faces risk of fiscal drag of as much as 4.6% of GDP by end 2012. • Fiscal stimulus: constrained in advanced economies. China and EMs has room to ease • Central banks will ease further. More QEs in advanced economies “2013: Low growth with high liquidity and still volatility”

  3. US Fiscal cliff • The prospect of split govt post election means significant downside growth concerns from the fiscal cliff remain. • The negotiation process to be messy and the ultimate solution is likely a few weeks away.

  4. Fed QE3+4 • The slow recovery in the labor market is likely to lead the Fed to extend QE3 into 2014 at least and hold policy rates near zero through late 2015. • The Fed will likely announce a new Treasury QE program at the Dec. $45bn Treasury buying to replace expiring Twist, means ($40bn + $45bn) x 12 months = $1020 bn/year • In 2008, Fed balance sheet was $870bn. Now it is $2.8trn. If QE3 goes as expected, balance sheet will expand to $5.5trn by mid 2015. • Some doubt effectiveness of QE3 in reviving the real economy. However, QE3 is meant to “buy time” and be the antidote to the risk of fiscal cliff. • More likely, QE3 would boost commodity prices, EM inflation, and capital flows into EMs.

  5. US corporate: high cash but not investing Corporate has high cash balance Corporate investment was weak Source: Census Bureau, BofA Merrill Lynch Global Research

  6. US: fiscal outlook is grim Spending components (% of GDP) Govt revenue and spending (% of GDP) Medicare Total noninterest spending Social security Medicaid Revenue Source: CBO, BoAML Source: CBO, BoAML Deficit projected in CBO’s baseline and scenario (% of GDP) Gross federal debt to GDP Source: CBO, BoAML

  7. Europe: Key points OMT: buys time but is no end game • Provides a backstop to sovereign risk, but is not an end-game solution • Conditionality implies volatility • Reluctance from Germany and Spain to use the instrument End game: from banking union to budgetary union, little progress leaves room for uncertainty • No appetite for budgetary union before 2014 • Limited appetite for banking union: debate focuses on EU27 vs EMU 17 and scope of banks (all vs large systemic only), the process will be slow • Still no debate and convergence on next permanent step for the EZ; no solution for Greece Economic outlook penalised by uncertainties – zero growth • Ongoing fiscal adjustment and bank deleveraging: negative for internal demand • No permanent solution to EZ construction flows: deters investment • Exports: firms need to build up capacity

  8. ESFS/ESM support

  9. 400 300 200 100 -200 -300 -400 Euro zone: Competitiveness and structural problems Eurozone: Current account ($ bn) Current account deficit to GDP -100 Source: IMF Source: IMF Unit labor cost Government deficit 2012 (% of GDP) Source: IMF, BIS Source: The economist poll, EIU

  10. China:leadership change • “If we fail to handle this issue well, it could prove fatal to the Party and even cause the collapse of the Party and the fall of the State” Hu Jintao, President of China speaking that the 18th Communist Party Congress on the issue of corruption, 9 November 2012 • Xi Jinping who will replace Hu as President in March 2013 will inherit a recovering Chinese economy (2013 GDP growth estimate 8.1%) but will have to sustain this growth while introducing reforms that combat corruption. • China has become more assertive about its claims in the South China Sea which stir nationalist sentiment that shore up support for the government. • However, other countries in the region – Japan, Australia, Korea and some ASEAN countries – have become nervous. US is taking advantage of the situation with Pres Obama visiting Myanmar and joining the ASEAN Summit. • Good news on Oct export growth of 11.6% (while import grew 2.4%) show that China is reliant on exports. But China needs to rely more on private enterprise and consumer spending which means curbing the power of SOEs and land grab by corrupt local officials.

  11. Rising supply and wage cost

  12. Manufacturers under pressure esp mid-up stream cos

  13. Exposure to property is significant & rising Source: CEIC, BoAML

  14. Thailand: GDP Growth Avg real GDP growth (2000-10) = 4.4% GDP Per cap as of 2011=$5,395/year

  15. GDP by sector

  16. GDP by expenditure Share (%)-2011 Growth (%yoy)

  17. Investment

  18. Exports

  19. Exports

  20. Government

  21. External debt

  22. International reserve

  23. Employment

  24. Production: nearly back to pre-flood • Automobile production back to normal earlier than expected • Recovery in electronic and electrical appliances lagging • Labor-intensive sector was weak, affected by wage increases. Relocation to neighboring countries was evident. Manufacturing production index Manufacturing production index by sector Source: OIE

  25. Domestic recovery Strong pent-up demand for durable goods General consumption pick up as well Source: Toyota Source: BoT Capital investment: replacement from flood damage Source: BoT

  26. Investment and releveraging Direct investment Strong retail lending Source: BoT Source: BoT

  27. Exports underperform Export growth: agriculture exports fell nearly 40%yoy Thailand exports’ market Share (% of total) % growth Source: BoT Source: BoT Rice export: sharp fall in quantity Source: BoT Source: MoC

  28. Govt.: spending delay, policy costs Fiscal balance (Bt bn) • Government spending is slower than expected. • In first 10MFY12, govt disbursement was 74.7% of total budget. • 46% of investment budget spent so far • Downside risk on tax revenue from tax cut and tax refund (Table below). • Rice pledging program is contingent liability. Loss to govt. could be Bt70-100bn this year. Source: MoF Cost of main policy (Bt bn/per year) Source: Government, Phatra Securities

  29. FY13 budget, Public debt Government annual budget plan (Bt bn) • Budget deficit is set at 2.6%of GDP, less than FY12. • Adding flood prevention spending, net stimulus to be 3.5% of GDP (assuming half is spent in FY13). Source: Budget bureau Public debt outstanding • Public debt on the rise from government populist policy and infrastructure plan. • As of Jun, public debt rose 12% from Dec last year to Bt4,791bn. Source: PDMO

  30. Govt wants to drive growth Thailand flood prevention plan • For longer term, Bt2.3trn govt. investment plan is meant to “transform Thailand” with broad-based infrastructure building. • Govt wants BoT help to release liquidity and cut financing costs. • Govt expediting four high-speed train lines centered in Bangkok to start in early 2013 • The high-speed trains cover 3,100 kms, costing Bt980bn. First phase Bt480bn. • Bt350bn emergency decree for flood prevention investment has not been spent. So far, Bt40bn approved. • Bt350bn must be committed by June 2013. • Govt. set to hire consortium to draw up conceptual plan which should be approved by early next year. Then spending could begin. Thailand long-term infrastructure plan

  31. Inflationary pressure declines…but risk from oil prices Inflation is under control Cost pressure declines Source: MoC Source: MoC Inflation expectation is higher than policy rate Inflation is driven more by fuel prices Source: Phatra Securities calculations Source: BoT

  32. Monetary policy: room for easing Real deposit rate is near zero Output gap is nearly closed 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 Source: MoC, Reuters Source: BoT (inflation report Aug 12) Policy rate and inflation Foreign holdings of Thai bonds Source: MoC, BoT Source: Thaibma

  33. The optimistic scenario • Opening-up of Myanmar holds great potential for the “ASEAN mainland” • For Dawei to happen, needs not just Myanmar-Thai MOU but full participation from Japan. • Govt. spending on infrastructure would complement the ASEAN mainland boom • Top-line growth would be boosted so that costly populist policies can be absorbed • However, sustainable growth may need genuine reforms: better education and training; reduced corruption; less distortion of the free market

  34. Source: ADB

  35. Thailand: Economic Forecast Source: NESDB, BoT, MoF, Consensus, Phatra Securities (as of Oct.12)

  36. Thailand background (1) Political and Regulatory regime: Generally benign neglect • Government generally refrain from intervention and it is written in the current constitution that the government should promote free markets and is not allowed to compete with the private sector except for national security reasons and the provision of public goods. • Minimum wage has become a populist tool to win votes. The government will raise minimum wage by 40%, applying it throughout the Kingdom starting 1 Jan 2013. Other populist policies include price support for rice, debt relief for farmers, easy credit for villagers, and universal health and free education. • Banks and insurance are regulated with limited room for foreign participation. Other domestic industries also provide limited access to foreigners such as retail trade and telecoms. Foreign participation is welcomed for export industries such as automobiles.

  37. Thailand background(2) Economic regime: an open economy • Thailand is a middle income country with per capita income of about $5500. Exports of goods and services account for 70% of GDP. Public debt is low at 43% of GDP but rising as the budget deficit is expected to average about 3-4% per year given ambitious infrastructure investment plans estimated to cost about Bt2.2trn ($70bn) over the next 5-7 years. • Good record of fiscal and monetary discipline. Since inflation targeting monetary policy regime was adopted in 2000, inflation averaged 2% per year. There is legislation to explicitly protect Bank of Thailand’s independence and core inflation ceiling set at 3% has been endorsed by the government. Government revenue amounts to about 18-18% of GDP. • Private consumption has averaged a steady 55-57% of GDP while private investment about 20% of GDP. Income and wealth distribution is uneven. Agricultural output is 10% of GDP but employs about 40% of the labor force while manufacturing is 40% of GDP but employs 15% of the labor force.

  38. Thailand background(3) Socio-Demographic • Birth rates peaked in 1974 and has since declined to 1.3% at present. It is estimated that Thailand’s labour force will trough around 2015 after which Thailand’s dependency ratio will rise steadily. • Social welfare and pension system is not comprehensive, having been started in the 90s. There is a pension scheme for the 2 million civil servants and private pension schemes exist for most of the industrial workforce and other modern sectors (banking, state enterprises). However, no such facilities exist for the farming sector and informal services sector accounting for 2/3 of the labor force. • Universal health care was introduced in 2001. Costs have been rising especially for civil servants and the government is working to contain the rising costs.

  39. Thailand background(4) Technology and media • Mass media is largely free, particularly printed media. Internet restrictions have been few except for recent crackdown related to les majeste offences. Expansion of mobile phones had been constrained by the politicization of the sector. Thailand is expected to grant 3G licenses to 3 operators by the end of 2012 after many years of delay. • Radio and television had been largely under the control of the government and the armed forces because historically it was thought to be critical for national security. The army still controls many free TV stations and all major radio stations. Cable TV and the emergence of community radio stations have further dilute the government’s hold on this media. • Spending on R&D has been marginal, estimated at less than 0.24% of GDP. Thailand has few well known brands. Only Jim Thomson Silk and Red Bull readily come to mind.

  40. Thailand statistical highlights (1) Population • Population: 67,091,089 (July 2012est.), country comparison to the world: 20 • Age structure: 0-14years: 19.5% (male 6,697,165/ female 6,386,840) 15-64 years: 71% (male 23,575,773/female 24,071,836) 65 years and over: 95% (male 2,870,445/female 3,489,030) (2012est) • Median age: total: 34.7 years male: 33.7 years female: 35.6 years (2012est.) • Population growth rate: 0.543% (2012est.), country comparison to the world: 148 • Birth rate: 12.81 births/1,000 population (2012est.), country comparison to the world: 154 • Death rate: 7.38 deaths/1,000 population (July 2012est.), country comparison to the world: 119 • Urbanization: 34% of total population (2010) Rate of urbanization: 1.8% annual rate of change ( 2010-15 est.) Source: The World Factbook, IMF, NSO

  41. Thailand statistical highlights (2) Population • Maternal mortality rate: 48 deaths/100,000 live births (2010), country comparison to the world: 110 • Infant mortality rate: 15.9 deaths/1,000 live births, country comparison to the world: 108 • Life expectancy at birth: 73.8 years (male: 71.4, female: 76.3), country comparison to the world: 114 • Total fertility rate: 1.66 children born/woman (2012est.), country comparison to the world:174 • Health expenditures: 3.88% of GDP (2010), country comparison to the world: 166 • Doctors: 0.35 per 1,000 (2011) • Beds: 2.1 beds per 1,000 (2011) • Literacy: 92.6% of total population (definition: age 15 and over can read and write) • School life expectancy (primary to tertiary education): 12 years • Unemployment, youth ages 15-24: 4.3%, country comparison to the world: 125 Source: The World Factbook, IMF, NSO

  42. Thailand statistical highlights (3) GDP • At purchasing power parity (PPP): $602.2bn(2011) • At market exchange rate: $345.6bn (2011) • Real GDP growth rate: 5.4% (2012, Consensus forecast)0.1% (2011)7.8% (2010)-2.3% (2009) • Per capita (PPP): $9,398 (2011) • Per capita (Market rate): $5,395 (2011 • GDP - composition by sector: agriculture: 13.3%, industry: 34%, services: 52.7% (2011) Labor • Labor force: 40.09 million (July 12) • Labor force - by occupation: agriculture: 40.7%, industry: 13.2%, services: 46.1% (2011 est.) • Unemployment rate: 0.56% (July 12) • Population below poverty line: 8.1% (2009 est.) Fiscal • Budget: revenues: $62.85bnn (FY12 target) or 17.2% of GDP) • expenditures: $75.5bn (FY12 target) • Budget balance: -3.5% of GDP (FY12 est.) • Public debt: 43.3% of GDP (Jun.12) Inflation and interest rate • Consumer prices index: 3.38% (Sep.12), average (2005-2011) = 3.3% • Central bank policy rate: 2.75% (Oct.12), average (2005-2011) = 3.07% • Commercial bank prime lending rate (avg 4 largest banks): 7.126% (Oct.12) • Commercial bank 12months deposit rate (avg 4 largest banks): 2.856% (Oct.12) Exchange rate: Bt/US$1 Source: The World Factbook, IMF, NSO

  43. Important Disclosures

More Related